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Attention Non-US Investors: CTAs on Sale!
October 1, 2007
If you follow the economic markets and financial news at all, you have no doubt heard about the plummeting US Dollar. With the US economy looking weak due to a looming credit crisis and poor housing market, the Fed has been forced to cut rates - and lower rates mean lower returns for foreign investors in U.S. Treasuries and other dollar based investments, which makes them sell dollars to buy other currencies.
How bad has the U.S. Dollar been - September saw the U.S. Dollar hit all time lows against the Euro, trade at parity with the Canadian Dollar for the first time ever, and hit its lowest rates against the Australian Dollar since 1990.
This is bad news for Americans looking to travel abroad or buy goods from overseas, as it will take more U.S. Dollars to buy things which haven't changed in price at all. So that 100 € dress in Paris that costs only $100 in 2003 now costs almost 40% more for Americans, at $140; despite holding steady in price.
On the flip side, this is a great time for those from outside of America to travel abroad and buy American goods. For example, that $500 a night hotel in New York that cost you 500 € in 2003 now only costs you about 350 €, for a 30% savings. To get an idea of just how strong this notion of buying US Dollar based things "on sale" has become, just take a look at Crude Oil prices - which have risen over $15 dollars per barrel, or 23% in US Dollar terms this year, but have risen just 6 €, or 12% in Euro terms. Part of this year's rise in Crude prices is being attributed to the artificial demand being created by the low dollar making Crude Oil appear as if it's "on sale".
US Dollar Based CTAs
So if commodities like hotel rooms and Crude Oil are "on sale" because of their being quoted and priced in US Dollar terms, what about the hundreds of professional commodity trading advisors (CTAs) which are also priced in US Dollars.
Is it too much of a stretch to consider these investments as also being "on sale". Not at all, in our opinion. Just like how it's a great time for Europeans to travel abroad, given the strength of the Euro against the Dollar and other currencies, its also a great time to invest in some dollar denominated CTAs. For example, a $100,000 minimum CTA that used to require 100,000 € to invest in now only requires 70,000 €. What will you do with the extra 30,000 € ?
Avoiding the US Dollar Risk
If a little bell went off in your head saying, "wait a minute, this seems to easy", pat yourself on the back. The discussion up to this point has been overly simplistic. That is because while you may pay 150 € less for a hotel room than you used to - you still get the same hotel room. And more importantly, the hotel room won't lose value if the U.S. Dollar continues to be weak.
In contrast, an investment in a professional CTA can fluctuate in value not only from the trading gains and losses achieved by the advisor, but also by the fluctuations between the U.S. Dollar and the Euro, for example. So, while it is true that non US investors can get involved with some of the top CTAs for nearly 30% less Euros than they would have had to invest 3-4 years ago; there is the problem of an investor possibly making less (in Euro terms) than they should be in percentage terms as reported by the advisor in US Dollar terms because of the US Dollar continuing to fall.
The chart below gives an example of this, showing the growth of 1,000 using the popular FCI program from Jan '06 - Aug. '07 for a US $ based investor versus an investor who would have to convert their Euros into US Dollars to trade the program. (Past Performance is Not Necessarily Indicative of Future Results). You can see that the Euro based investor has under performed the US $ based investor, in percentage terms, and in fact the difference is a total gain of 206% for the US $ based investor versus just 162% for the Euro based investor.
So how do you solve this riddle? How do you invest in top rated US Dollar based CTA's right now when they are "on sale" without taking on the US Dollar risk and suffering lower performance in Euro terms? The secret is to never convert your Euros, Pounds, or Aussie Dollars.
That's right, your trading account can be held in Euros, Swiss francs, British Pounds, Canadian Dollars, Australian Dollars, and more. Really any of the major currencies. Investors can fund their accounts in any of the above currencies, which opens up the possibility for access to top rated US Dollar based managers without being subject to the falling US Dollar risk.
Your entire initial investment will remain in the currency of your choice, with only profits and losses from the trading of the account in US Dollars. But – even those profits or losses made through trading don't have to stay in US Dollars, they can be automatically converted for you, or we can convert them at any time per your instructions.
So don't miss out on top rated U.S. Dollar based futures programs and advisors that are "on sale" because of the falling price of the US Dollar. You can still get access to them without the bulk of the currency risk.
For more on how to hedge against the falling dollar - please read our past newsletter highlighting 4 methods of hedging U.S. Dollar risk. http://www.attaincapital.com/alternatives/alt_dec1806.htm#Topic
IMPORTANT RISK DISCLOSURE
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It appeared last month as if the US Stock market has rebounded from the worldwide credit /liquidity crisis for the moment. The FOMC stepped in and saved the day with a 50 basis point interest rate cut in mid-September which rallied SP 500 futures +3.25% higher for the month. However this same rate cute caused the US Dollar to lose value to most other currencies around the world, notably the Euro, Pound and Canadian Dollar. The weakening dollar also made dollar based commodities sky rocket higher in September. Prices from grain futures to metal futures and energy futures all rallied higher for the month as these commodities were "on sale" in dollar terms (see topic of the week).
Stocks were the main beneficiary of the rate cut as both NASDAQ (+4.77%) and DOW (+3.99%) rallied higher with the SP. Smallcaps also had a nice month with Russell 2000 futures (+1.63%) and SP Midcap futures (+2.23%) both trading higher.
The rate cut wasn’t as kind to the US Dollar as Dollar Index futures fell -3.66% in September. Notable gainers include the Euro(+4.48%) which rose to all time highs against the Dollar, and the Canadian Dollar (+6.05%) which closed the month worth more than the US Dollar. The Aussie Dollar (+9.67%) and Swiss Franc (+3.42%) also were up against the Dollar. Treasuries surprisingly weren’t affected very much by the rate cute and closed the month near breakeven.
In commodity trading both the energy and grain markets had huge months. Some of the move was a result of the interest rate cut while some had to do with supply/demand issues. In energy trading Crude Oil futures (+12.15%) led the way in September and were closely followed by Natural Gas (+9.76%), Heating Oil (+7.47%), and RBOB Gasoline (+4.78%).
The grains saw Wheat futures gain an astronomical +21.08% for the month while Soybeans (+12.32%) and Corn (+9.71%) also traded higher. Metals were also hot with Silver trading +13.82% higher while Gold (+9.99%), Platinum (+9.23%), Copper (+7.15%), and Palladium (+4.20%) all had big up months as well. Finally in the softs Coffee futures led the way trading 11.05% higher while Cotton (+6.61%) and Sugar (+3.15%) also saw gains.
***Commodity Trading Advisors (CTAs)***
EARLY ESTIMATES for a majority of Attain's recommended CTA’s are at the bottom of this newsletter in the chart of the week section.
What a difference a month makes. Following August, which turned out to be one of the most volatile months in recent history, both Index Option Selling and Trend Following CTAs found some peace of mind in September as both categories rebounded with impressive gains.
The top performance of the month, if not the year, was the Dighton Capital USA - Swiss Program, which topped the charts with an impressive estimated gain of +35% for the month to hit new all time equity highs. Other CTAs hitting all time highs included the NDX Shadrach program, which had a September return of +16% (est), and Attain's own APA - Strategic Diversification program, which tacked on an additional 2.95% to bring its annual return to just over 16%.
For those investors involved in Dighton and NDX, a great deal of patience has certainly been required to stick though the past 7 months of flat / down trending markets; but that longer term investment approach is now appearing to be rewarded.
Out of the Index Option sellers, Ace Investment Strategists was the top performer, earning an estimated +9.6% in September. Crescent Bay, Zephyr Asset, and BC Capital also posted estimated returns between 5 and 6% for September, as short Put positions quickly evaporated thanks to the rally off the Fed rate cut. .
One category that under performed in September was the Commodity Option sellers. Ironically, after posting impressive gains in August where Index Option sellers were down, both FCI and CKP Lomax ended September in the red losing an estimated -6.8% and -3.3% respectively. Noting the Sep drawdown in this category it is important to remember the need for diversification in one's portfolio across multiple markets, mangers, and investments styles.
Looking ahead please note that we have added several high profile Forex managers to our website and will continue our research into this sector to be included in future updates. Look for the here
***Day & Swing Trading***
September was a tough month for day trading systems as stock index volatility fell by almost 25 % from the month prior. Swing systems had mixed results with a few systems able to catch the rebound in stocks and others falling victim to the choppy conditions. Starting with the swing systems, Adaptive Euro was the top performer with impressive profits of +$18,622.90 for the month. For the majority of the month, the program was long as many as three contracts in the FTSE, Dax, IBEX and CAC40. Signum EBL made +$3,640 after riding the Eurobund higher for several months and reversing short mid-month. Bounce eRL had one trade good for profits of +$1,760. Mesa Notes made +$1,587.50 after reversing short in the Ten Year Note and then reversing long.
Signum TY made +$234.37 for the month after holding a portion of its long position. Bounce eMD had one trade for a loss of -$160. Ultramini ES and YM lost -$72.50 and -$77.50 respectively. SeasonalST ES and eRL lost -$942.50 and -$1,530 respectively but put on some promising long trades on the last day of the month (which looked good after today). Adaptive US Index lost -$1,656.67 mostly on long trades. Ultramini eMD had just two trades for a loss of -$1,790. Mosaic eRL had 23 trades for a loss of -$4,799.22.
Of the day trading systems, BounceMOC eRL was the top performer with gains of +$1,760. BetaCon 4/1 ESX had profits of +$726.19 on nine trades for the month. OPXP eRL had ten trades for a loss of -$40. Rayo Plus Dax had seven trades for a loss of -$902.64. Waugh eRL had seven trades for a loss of -$1,640.01. Compass SP lost -$2,688.90 after getting caught up in several whipsaw trades. Keystone eRL had a tough month with losses of -$6,980.
Long Term system activity during September was fairly quiet with just a couple of new positions and one exit, despite fairly active, although very volatile activity in many sectors of commodities. Market movement in several sectors was active with the main catalyst being the U.S. Dollar, which continued its trek lower scoring historic price levels versus several foreign currencies. After the Federal Reserve cut key lending rates in mid-September dollar weakness accelerated .
The grain sector especially the wheat market continued to show real strength as roughly 22% was added to wheat prices during September on shrinking world stockpiles and more threats of weather induced production cuts in the Southern Hemisphere. Soybean prices also shot up as worries the U.S. crop may not meet harvest expectations helped spur prices above the historic $10.00 level. Timely rain in the dry sections of the Corn Belt the past summer seems to have ensured a large corn crop and prices have indicated just that as the corn was the laggard of the sector in October. Weather was also at the forefront of strong price action as forecasts for an extended period of dryness in the South Hemisphere not only sparked wheat higher, but has started to add weather premiums in many markets and should be watch real closely in the next 6 months. Stronger demand for items such as cotton, sugar, and coffee seem to be gaining momentum as some of these commodities added to gains from August.
Aberration is long Bean oil with a gain of +$318.00 (open trade), Long KC wheat with a gain of +$12850.00 (open trade). The short Corn position was stopped out for a loss of -$1125.00. Other positions held by Aberration are Short the Dollar Index gaining +$1625.00 (open trade), Long the TY at about scratch, and Long the EuroBund losing -$1810.00 (open trade).
IMPORTANT RISK DISCLOSURE
Futures based investments are often complex and can carry the risk of substantial losses. They are intended for sophisticated investors and are not suitable for everyone. The ability to withstand losses and to adhere to a particular trading program in spite of trading losses are material points which can adversely affect investor returns.
Past performance is not necessarily indicative of future results. The performance data for the various Commodity Trading Advisor ("CTA") and Managed Forex programs listed above are compiled from various sources, including Barclay Hedge, Attain Capital Management, LLC's ("Attain") own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.
The dollar based performance data for the various trading systems listed above represent the actual profits and losses achieved on a single contract basis in client accounts, and are inclusive of a $50 per round turn commission ($30 per e-mini contracts). Except where noted, the gains/losses are for closed out trades. The actual percentage gains/losses experienced by investors will vary depending on many factors, including, but not limited to: starting account balances, market behavior, the duration and extent of investor's participation (whether or not all signals are taken) in the specified system and money management techniques. Because of this, actual percentage gains/losses experienced by investors may be materially different than the percentage gains/losses as presented on this website.
Please read carefully the CFTC required disclaimer regarding hypothetical results below.
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN; IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK OF ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL WHICH CAN ADVERSELY AFFECT TRADING RESULTS.